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8 ways Internet companies make money

Unicorns are ‘in’. What are their typical sources of revenue?

The emerging landscape of public Internet companies

India has 47 unicorns and 232 soonicorns and at least half a dozen of these Internet companies are set to float or will likely float their maiden IPO. The names include Zomato, Mobikwik, PayTM, Nykaa, Policy Bazaar, Lenskart and Delhivery. Analysts say many more will follow in the coming years.

For the stock market novice, a unicorn is a company with a $1 billion+ valuation and a soonicorn (lovely name!) is a company likely to get there ‘soonest’. The sentiment (of the stock market variety) is that the Covid-19 pandemic has increased consumer adoption of the products and services of these primarily tech, Internet-fueled enterprises. This has lead to an attractive window of opportunity for getting listed.

The Indian Internet sector has been around since 1998 (August 15, 1998 is when India got it’s first Internet Service Provider, VSNL) but only a handful of companies have ever gone public, either on foreign bourses or on Indian ones. Rediff.com listed on the NASDAQ in 1999, followed by Make My Trip and Yatra Online in 2010. On the NSE/BSE, Info Edge (naukri.com) listed in 2006 and Infibeam, Bharat Matrimony, Indiamart and Ease My Trip followed over a decade later (2016 onwards).

The upcoming, anticipated flood of Internet companies hitting the stock markets will therefore be a rare, momentous occasion and a turning point for the sector as a whole.

Revenue streams and their importance to Internet companies

Having myself been part of the Internet sector since 1999 – an involvement which includes being part of the management team which first took an Indian Internet company public (Rediff.com on NASDAQ) – I can say that Internet companies work under vulnerable circumstances. They must meet investors outsized growth expectations while competing with equally smart, charged-up rivals and while confronting potentially disrupting regulatory, trade, globe and consumer forces.

Therefore the better diversified the business, the better its management will sleep at night. Diversifying sources of revenue – what I have here called revenue sources – is an important step to be considered to make Internet companies safe and secure.

It’s thus a good time to refresh ourselves on the different revenue streams available for Internet companies and the key factors required to succeed for each. I know of 8 types of revenue or revenue streams, of which the first four can be considered major and the last four minor.

Major revenue streams

For most Internet companies, these revenue sources account for the bulk of the revenue. In no particular order, these are as follows.
1. The first revenue stream is e-commerce. B2C businesses (say Lenskart) can sell their products online on their own website. Further, they can supplement such revenue via marketplaces such as Amazon.com.

The key success factor here is having differentiated products and the ability to build trust.

One can also build marketplaces (e.g Nykaa and Policy Bazaar) and earn commission revenue. Succeeding in these require building value-added offerings, relentless focus and preferably an early to market start.

Ticketing, which includes travel, movies and hospitality, as well as shared mobility (Uber) services is a big segment within e-commerce. The other big segment is delivery, whether this be food delivery, grocery or other. These are transaction-based or fee-based service businesses.

The key success factor for the fee-based service businesses is achieving critical scale through an appropriate level of investment, though partnerships and tech innovation, while also achieving operational efficiency.

2. The second way for a business to make money off the Internet is to generate leads.

While an individual lead does not result in a sure-shot sale or predictable revenue, across a large number of leads it is possible to guesstimate conversions and revenues.

The nature of leads generated varies according to the business. These could, for example, be consumer durable companies generating requests for a product demo or a home visit; these could be clinics, salons and other service businesses providing appointments for patients; schools and universities looking for admissions enquiries or housekeeping and gifting companies seeking meetings with Admin heads of large corporates.

In my experience, the key success factors here are brand recognition (is the brand known and better known than competition) and savvy online marketing. Also, online marketing for lead generation works best for products and services of a certain minimum ticket value.

An example of an Internet company whose revenue works off lead generation has been Just Dial. Of course, a large number of offline or non-Internet businesses depend on lead generation. These were the examples cited above (viz. consumer durables, clinics, universities and corporate gifting).

3. A third revenue stream is subscriptions. Ongoing and daily needs lend themselves to subscription businesses. These needs include milk, newspapers, magazines, paid e-mail, paid music apps and premium LinkedIn accounts. These have recurring customer revenues thanks to the subscription.

Products and services delivered online – such as paid email (this would exclude milk) are often though not always on a freemium model – where the basic service is free and the service that has value-added features needs to be paid for.

As a marketer, I believe the field is also ripe for subscriptions of other ‘real-world’ products. AI-driven home delivery of coconut water, fruits and medicines anyone?

4. The fourth revenue stream is online advertising. This is the domain of media companies. For online advertising, one can have one’s own sales team or seek a partnership with resellers and ad networks. The best known ad network is Google Display Network, for which one can sign up online via Google Ad Sense.

Internet ads are ‘cheap.’ The key success factor here is getting large amounts of traffic to one’s website.

If one has large amounts of traffic and a brand, one can generate sponsorship revenue, which usually is high ticket revenue and not linked to the ad performance.

Minor revenue streams

The first three of these sources are not very common. The last (eight) source is a potentially important and I would say an emerging revenue stream, at least in the Indian market.

5. The fifth revenue stream is selling virtual goods. Items like paid avatars are used in gaming (cf. Ten cent, China) and have been earlier tried in social networking sites as well.

The key success factor here is the ability to create a very large user community online.

6. Syndication is a sixth revenue stream. Media brands with unique, quality content can consider syndication or licensing of their content. Thus, New York Times articles are syndicated to publications world-wide.

7. A seventh revenue stream is affiliate revenue. One can work as an affiliate site, sending traffic to and generating sales for a larger, more established website/brand.

The key success factor for an affiliate is becoming an authority or expert within a specific ‘domain’, attracting niche traffic interested in this topic and then sending this traffic to a website selling goods in the same ‘domain’. E.g. a sports news site can be an affiliate for a sports goods site and a books review blog can be an affiliate for an online bookstore.

8. In today’s day and age, all businesses with a strong online revenue component contemplate a brick and mortar component to their business. An online presence drives offline revenue just as offline presence can drive online revenue.

In this omni-channel world, revenues from retail stores can be considered as the eighth revenue stream for Internet companies.

That makes it 8 revenue streams that I know of. Are there others? If you do know, do drop a line.

The evolving revenue-mix

All Internet companies do end up diversifying their revenue mix. Google was primarily advertising-led but moved to fee-based services. Amazon was mainly e-commerce, then moved to fee-based services with AWS and now counts online advertising as it’s fastest growing business. LinkedIn, now a unit of Microsoft, makes money from job hiring fees, premium memberships and online ads. At Internet portal Rediff.com (where I worked), we made money from advertising, e-commerce and subscription services such as paid email and matchmaking.

India’s Internet companies have most notably pursued creating brick and mortar chains. Eyewear major Lenskart has over 80 retail stores. Here, companies seem to prefer the franchise model, presumably because it is faster to market and asset light (growth X ROI!). Flipkart has an online ad business that brings in some decent revenue.

I suppose most Internet businesses will attempt to diversify their revenue streams. They will seek to encash (monetize!) their brand, user base, talent bank et al (see key success factors above for each of the 8 revenue streams).

What are the detailed dynamics driving these trends? The answer is beyond the scope of this post. Many must have studied this well already, it will be interesting to know who.

Well, this is what I know. Something to think of ahead of the anticipated gravy train of digital IPOs in India, which starts tomorrow (14th July, 2021) with Zomato.

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My advice below is a little better 🙂 Image: Cartoonstock.com

Ahem… some advice. My last post was on marketing for all organizations and this time, it’s the marketers who I am giving advice to. And as in that post, the ‘now‘ in the headline (‘Four activities that marketers should take up now’) refers to the current pandemic times we now live it.

Here is the advice.

  1. Develop your organization’s under served brands and the corporate brand
    I wrote about this in the previous post. That article listed 10 actions that organizations need to take during today’s pandemic times. You should be talking within your own organization about doing these.                                                      

2.  Help develop your organization’s online capabilities
Most marketers have not had a chance to develop their digital or online skills.                                                                                                                           

Very few will have worked in the Internet sector, by which I mean companies like Google or Yahoo or Amazon. Here, and I speak from personal experience, one really gets to understand the online medium. Nor do most organizations have an e-commerce business and even if they do have one, it is a small part of the whole. Therefore, few executives, marketers included, have had hands-on online experience.

In case your organization has an e-commerce business, I suggest you ask to be assigned to it, even temporarily or part-time. The value you will get: a richer understanding of the market. You will get to listen to consumers, sometimes one on one via their social reactions and sometimes via the data. You will also be able to test responses to alternate communication and to pricing changes. The consumers comments will be most revealing. 

Online consumers are most well-informed, and given the choices online, most demanding. By learning how to appeal to such customers, you will benefit overall. Online may be where you should soft launch and test year 2022’s product launches.

If your organization is a B2C business but is not in e-commerce, see if you can take the lead in starting one. Get an e-commerce website created. If this look difficult, see if the company’s products are listed on Amazon and other marketplaces and offer to help manage this channel. And if your products are not listed on these marketplaces, take the lead in getting this done. Selling on Amazon is ultra-competitive: you will learn about your products and the market.

If yours is a B2B business that cannot use e-commerce, see how you can take improve the ‘digitization’ of the business. Here are some ideas. If the home market (say India) is dull (due to the pandemic), see if you can give a push to your international marketing. Ask your website agency or team for help in getting more international traffic. Or help improve the online presence of your channel partners. E.g., if you are selling steel or appliances or cement, can you create a dedicated page on your company website for each of these partners?

I have more examples to share here but will save these for later.

3. Build your own professional skills                                                              

Yes, this is stating the obvious, it is a motherhood statement, but I find few professionals, marketers included, investing time in doing this.  Yet now, when business pressures are possibly less and one is working from home, there can be no excuse.

There are two situations. The first type of skill needs are common to many junior marketers that I encounter today. This is a weakness in what I call core business skills – oral and written communication, analytical capabilities and awareness of the world around them. These skills are vital for marketers.                                                                 

There is no one fix. Extensive reading helps improve some English skills and general knowledge. Coursera has a specialization on data analysis and presentation skills and the other learning portals like EdX and LinkedIn Learning may have similar useful courses too. There are many apps and videos that can help improve vocabulary and speaking skills. The British Council in India offers well-regarded English courses.

Can you use your professional talents for some voluntary work? Given that there are just a few marketers out there (e.g. just about 1% of the people on LinkedIn are marketers, as per my quick research), your contribution is sure to be valued. If you are already doing this, great. For most, it will be the first step, so start small.

The second situation: most marketers will do well to keep abreast of new developments in marketing and in digital marketing. I subscribe to the daily newsletter of the American Marketing Association. It mails a curated selection of about 7 or 8 marketing items – articles, blog posts and news items – everyday. You may also like to check out Interskale’s Internet marketing resources page.

4. Give back

The best example of starting small is perhaps my own. I recently used my understanding of colours (which marketers have) to get my apartment complex repainted right, in attractive shades that go well with the walls, the lighting and the ambience. And I informally advise a company that sells eco-friendly products on their branding.

Just two small examples. Hope you get the idea.

This blog post originally appeared on June 3rd, 2021 as an article in LinkedIn. Minor changes have been made vis-a-vis the LinkedIn article.

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This blog post originally appeared on May 24th, 2021 as an article in LinkedIn. It’s meant to act as two bits of advice for senior management of organizations. Small changes have been made vis-a-vis the LinkedIn article.

The marketing that all organizations need

            MOST ORGANIZATIONS ARE NOT DOING MUCH MARKETING

The ‘now‘ refers to the current period in our global history viz. the Covid-19 pandemic. At this time, this has been around for 15 months and it will be many months before it wanes.

The reference to ‘most organizations‘ refers to organizations who are not regular or heavy spenders on marketing and who don’t have a full marketing department. For instance, a look at the Economic Times 500, which consists of the 500 largest companies in India by revenue, shows that about 80 to 90% of them belong to industries who are not likely to be regular spenders on marketing. Similarly, of the 150 odd industries seen on LinkedIn, only about 20% are known to spend on marketing.

The marketing advice that I wish to share is for such non-marketing companies. Even non-marketing companies, which don’t have products and services that need active marketing, have a corporate brand to take care of, and my advice is about this (details below).

My recommendations here apply to marketing companies as well. However, these companies may already be following these measures.

For my recommendations to get seriously considered, one will need the ear of senior management. And I believe that today there is a good chance of this happening.

In normal (read “non-pandemic” times), most organizations are caught up in a whirlwind of activity. The leadership teams are most busy. In the current pandemic, however, business activity is at a somewhat low level – and management bandwidth is possibly available – for the marketing activities that I have in mind.

Here is the advice: Pay attention to your brands. Firstly, all organizations need to pay attention to their corporate brand. And organizations which have branded products or services need to re-look the strategies for these brands.

What does it mean to pay attention to the brands?

  1. What is our value proposition ? Is our offering to our customers relevant and distinctive? This is needed as much or more for corporate and B2B brands as for product and B2C ones.
  2. Are our customers happy ?
  3. Is our understanding of the above value proposition and customer satisfaction based on any factual data ? When have we last ‘listened’ to our customers and prospective customers?
  4. Today, in the majority of cases, customers first become aware of brands through online. And the world is global and interconnected, ever more so now after the pandemic. International customers in particular are most likely to learn about your brands and organization online. Therefore, how good is the (online) information about us ? Is it accurate and updated, complete, interesting and perhaps even compelling?
  5. Where all is this information ? Apart from the company website, is it on individual brand websites, company LinkedIn page, LinkedIn pages of individual employees (via their current job descriptions), other social media such as You Tube, on Amazon, on Google My Business listings (for retail businesses) and on marketplaces such as Alibaba (for B2B businesses)?Again, is the content about us on each of these channels accurate, updated, complete et al?
  6. Is there media coverage or customer reviews about us online? How well do we fare here?
  7. How good is our website ? Have we ever got a website audit done by a third party ?
  8. Are the social media channels well-managed ?
  9. When have we last got an opinion taken on our brand logo ? Have we ever got a brand identity exercise done?I once met a top visual designer. When I handed him my business card, he said it wasn’t designed well. He said he could tweak the design and that he believed it would improve my company’s image so much so that I would be able to command a 15% increase in our rates. We did get a more cleaner and sharper design, I must say.
  10. Can we set a simple way or a process to manage our corporate brand – inclusive of the pieces mentioned above – so that it stays relevant and attractive for time to come ?

While ten marketing activities may seem a lot to do, the good news is that not all may be equally important and doing even one will be rewarding.

In my experience, this corporate marketing exercise does tend to get neglected. The primary reason is paucity of management time. However, as given above, for most organizations, there can be no better time than now (the year of the pandemic).

Marketing image credit: https://www.marketingstrategy.com/marketing-extends-well-beyond-the-marketing-department/

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